O-Level Inventories

What the O-Level syllabus expects for Inventories, and how to practise it.

What the syllabus expects

Explain the reasons a business holds inventory
Set out the ways a business manages its inventory
Weigh both accounting and non-accounting information to decide what inventory to buy
Scope: Non-accounting factors limited to types of storage, nature of product and customer preference
Explain how inventory is valued with reference to the relevant accounting theories
Scope: Relevant theory: prudence
Pick out the costs that make up purchases
Compute cost of sales and closing inventory
Scope: Uses the FIFO method and the perpetual inventory recording method
Compute the impairment loss on inventory, allowing for any insurance claim
Write the journal entries recording inventory when goods are bought and cost of sales when they are sold
Write the journal entry for an inventory impairment loss
Draw up the inventory ledger account before any impairment-loss adjustment
Read the inventory ledger account once impairment-loss and/or insurance-claim adjustments are included
Work out how understating or overstating inventory shifts gross profit/loss and the period's profit/loss
Scope: For the current financial period only
Name how inventory is valued in the Statement of Financial Position
Scope: FRS 2: carried at whichever is lower, cost or net realisable value
Produce, from both the Statement of Financial Position and the Statement of Financial Performance, extracts that set out the figures for impairment loss on inventory, cost of sales and closing inventory